While buying a home may be an Australian tradition, the conditions under which home buyers have been able to acquire and use housing finance have changed considerably since deregulation of the financial system during the 1980s.1 The nineties, in particular, have been characterised by increasing competition between housing finance lenders, falling interest rates, larger average loan sizes, higher rates of refinancing, and increased use of the home to secure loans or credit for other purposes.

Housing finance statisticsMost of the statistics on housing finance presented in this article are drawn from two ABS surveys: the Australian Housing Survey, most recently conducted in 1999; and the Survey of Housing Finance for Owner Occupation, collected monthly since December 1980.

Home owners are households which own or are purchasing their home, regardless of whether or not they have a mortgage.

Owners with a mortgage are households in which anyone is making payments on a mortgage or loan secured against the dwelling, regardless of the purpose of the mortgage or secured loan.

Owners without a mortgage are households in which no one is making payments on a mortgage or loan secured against the dwelling.

Home loans are any loans/mortgages for which the sole or main purpose is to buy or build the dwelling in which the household is currently living.

Recent home buyers are households which purchased, built, or otherwise came to own their current home in the previous three years.

First home buyers are households where none of the current owners have previously owned or been purchasing a home.

Changeover buyers are households where all current owners have previously owned or been purchasing a home.

Home owners with a mortgageIn 1999, 45% of all Australian home owners (2.3 million) were paying off one or more mortgages or loans secured against their home. However, not all mortgages were used solely to buy or build a home. In 1999, 21% of owners with a mortgage were repaying loans which had been used exclusively for other purposes (compared with 9% in 1988) while 11% had combination home and other-purpose loans. Overall, 31% of all home owners with a mortgage in 1999 were using their home to secure loans for purposes other than to buy or build their home.

HOME OWNERS WITH A MORTGAGE, 1999

Purpose(s) of secured loan(s)

'000

%

To buy/build home only

1,691.7

75.0

To buy/build home and other purpose(s)

243.7

10.8

For other purpose(s) only

477.3

21.2

Total with loan(s) for other purposes(a)

708.4

31.4

Total with a mortgage(a)

2,256.1

100.0

Owners with a mortgage as a proportion of all home owners

. .

44.6

(a) Some households have more than one type of loan or mortgage and therefore components do not add to total.

Source: ABS 1999 Australian Housing Survey.

Getting a housing loanFor most Australians, buying a home involves raising a deposit then borrowing a substantial amount of money from a bank or other lending institution which then holds a mortgage on the property. Banks have always dominated the home lending market, increasing their market share during the early nineties to reach 90% in 1993-94, mainly as a result of several building societies becoming banks or merging with banks. However, since the mid-nineties, mortgage managers have entered the home lending market, undercutting bank lending rates and attracting both new and existing customers away from banks.2 By 1998-99, mortgage managers accounted for 7% of all home loans approved, while the share of banks had dropped to 83%.

APPROVED HOUSING FINANCE(a)

Year ended 30 June

1989

1994

1999

%

%

%

Banks

78.5

90.1

82.8

Building societies

12.7

6.6

3.9

Other lenders(b)

8.8

3.2

13.3

Mortgage managers

. .

. .

6.8

Total loans

100.0

100.0

100.0

'000

'000

'000

Total loans

359.7

544.5

488.2

(a) Approved during the reference year, not all approvals become loans. Excludes approvals mainly for home alterations or additions.(b) As only the largest other lenders are included, estimates of overall market share are approximate.

Raising a depositIn 1999, savings were the most common source of home loan deposits among all recent home buyers, particularly among first home buyers (83% of whom sourced some or all of their deposit through savings). While over a half (53%) of changeover buyers also saved for all or part of their deposit, a substantial proportion (35%) used the proceeds from the sale of their former home. First home buyers were more likely than changeover buyers to have received help from family or friends, either in the form of a gift (7% compared with 1%) or informal loan (5% compared with 2%).

SOURCE OF DEPOSIT OF RECENT HOME BUYERS(a), 1999

Source of deposit

First home buyer

Changeover buyer

Total(b)

%

%

%

Savings

83.1

53.4

64.7

Sale of former home

. .

35.3

22.5

Loan(c)

6.7

6.5

6.5

Family/friends

4.6

2.2

2.9

Formal (e.g. bank)

*1.8

4.1

3.2

Gift from family/friends

7.0

*1.4

3.6

Other source(s)(d)

9.8

8.5

8.6

Total(e)

100.0

100.0

100.0

‘000

‘000

‘000

Total(e)

279.2

479.0

826.5

(a) Includes only those households that paid a deposit. (b) Includes households with a combination of first home buyer and changeover buyer. (c) Includes informal loans from all sources.(d) Includes inheritance, sale of car or other possessions, and other sources.(e) Some home buyers report more than one source of deposit and therefore components do not add to total.

Source: ABS 1999 Australian Housing Survey.

Average loan sizeThe average amount borrowed for home loans has increased steadily during the nineties, and at a faster rate than both house prices and household incomes. Between 1988-89 and 1998-99, the average loan size increased from 1.9 times to 2.8 times the average annual household income. Associated with their younger age profile and lower average incomes, first home buyers borrowed less, on average, than changeover buyers. However the rate of increase in average loan size was similar for both groups.

Increased competition between lenders during the nineties has seen a continuation of the trend towards higher loan to value ratios (i.e. lenders have been willing to lend higher proportions of the value of the property).1 Consequently, the amount of deposit required, as a proportion of the purchase price, has declined during the period. This may have enabled buyers who would otherwise have been restricted by deposit considerations, rather than the ability to repay a larger loan, to borrow more.

At the same time, the sharp decline in housing interest rates (from 15% in 1988-89 to 7% in 1998-99) would have made the repayments on larger loans much more affordable. Another contributing factor to the growth in average loan size is the increasing tendency for households to take out combination home and other-purpose loans.1

AVERAGE LOAN SIZE(a)

(a) Approved during the reference year, not all approvals become loans. Excludes approvals mainly for home alterations or additions.

Mortgage repaymentsDeclining interest rates during the nineties have moderated the effects that higher average loan sizes would otherwise have had on average mortgage repayments. As a result, average weekly mortgage repayments (as a proportion of average weekly household income) increased only slightly during the nineties, from 14% in 1988-89 to 15% in 1998-99. During the same period, interest payments as a proportion of total mortgage repayments decreased from 77% to 48%, indicating that many home owners were taking the opportunity of declining interest rates to pay off their home loans more quickly rather than opting to reduce repayments. In 1999, 54% of all home owners with a mortgage were making above the minimum required loan repayments.

TRENDS IN AVERAGE LOAN SIZE AND MORTGAGE REPAYMENTS

Year ended 30 June

1989

1999

ratio

ratio

Ratio of average loan size(a) to average gross annual household income(b)

Average weekly mortgage repayments(c) as a proportion of average gross weekly household income(d)

14.1

15.3

(a) Refers to home loans approved during the reference year, including refinancing . Excludes loans mainly for alterations or additions.(b) Refers to average gross annual income of all households.(c) Relates to all home mortgages existing in the reference year, regardless of when the loan was taken out.(d) Refers to average gross annual income of households with a mortgage.

RefinancingRefinancing involves contracting a new loan agreement, usually with a different lender, and borrowing enough money to pay out the original loan(s), and possibly an additional amount for other purposes. Borrowers incur costs when refinancing, in the form of new loan establishment fees and, in some cases, penalties for early repayment of the original loan(s). However, for many home owners with a mortgage, the advantages of refinancing (e.g. lower interest rates or better loan conditions associated with newer types of home loan) outweigh the costs.

REASONS FOR REFINANCING, 1997-1999

%

Better interest rate

23.3

Better loan conditions

25.1

Extension of loan period

5.1

Home renovations

9.5

Other purchase (e.g. car, holiday)

21.0

Consolidation of debts

15.2

Business related reasons

7.5

Other reasons

17.4

All home owners who refinanced(a)

100.0

‘000

All home owners who refinanced(a)

510.7

(a) Some owners report more than one reason for refinancing and therefore components do not add to total.

Source: ABS 1999 Australian Housing Survey.

Of all home owners with one or more loans in 1999, one in five had refinanced since January 1997. The most common reasons for refinancing were; to get better loan conditions (reported by 25% of all owners who refinanced), to get a better interest rate (23%), or to finance large purchases such as a car or holiday (21%).

Housing loan refinancing has become more common during the nineties. Between 1991-92 and 1996-97, the proportion of all new home loans which involved refinancing with a different lender almost trebled, from 8% to 23%, but has since dropped back to around 19% in 1998-99.

PROPORTION OF HOME LOAN APPROVALS(a) WHICH INVOLVED REFINANCING WITH A DIFFERENT LENDER

(a) Approved during the reference year, not all approvals become loans. Excludes approvals mainly for home alterations or additions.

Using the home to secure loans for other purposesIn 1999, 708,000 Australian households (31% of all home owners with a mortgage) were using their home to secure loans for purposes other than to buy or build that home. The most common ‘other purposes’ were to buy a car (reported by 32% of all home owners with such loans), to fund home alterations or additions (31%) and to buy or build another property (26%).

OWNERS WITH MORTGAGES FOR OTHER PURPOSES(a), 1999

Purpose(s) of loan(s)

%

Motor vehicle

31.8

Home alterations/additions

30.6

Buy or build other property

25.8

Alterations/additions to other property

2.7

Holiday

2.8

Other purposes

29.0

Total(b)

100.0

‘000

Total

708.4

(a) Includes multipurpose home loans and loans used solely for purposes other than to buy or build the home.(b) Owners may have more than one ‘other purpose’ loan or loans with more than one ‘other purpose’, and therefore components do not add to total.

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